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What is a portfolio entry?

By Fitri Wulandari

Reviewed by Vanessa Kintu

Fact checked by Paul Sorene

Portfolio Entry

The simplest way to define portfolio entry is as a list of all liabilities a reinsurer is liable for when entering into treaty reinsurance. A portfolio entry is used to account for unearned premiums from inactive policies during an accounting period, as well as unearned premiums that carry over into a future accounting period.

Understanding portfolio entry

An insurance company will have a portfolio of policies with different expiration dates, as it underwrites policies over the course of the year. At the end of a fiscal year, the insurer must identify the dollar amounts of premiums’ earnings and unearned premiums.

Earned premiums are associated with expired policies. Unearned premiums are portions of the policy premium that have not yet been ‘earned’ because the policy is still valid. 

For insurance companies, active policies are a liability because the policyholder can claim before the policy term expires. To avoid this, they might use reinsurance contracts to transfer some of their underwriting liabilities to a reinsurer. In exchange for assuming the liabilities, the reinsurer will get a percentage of premiums received by the insurer. 

Each portfolio entry means a policy that the insurer has ceded to the reinsurer.

A reinsurer is a company that provides financial security to insurance companies. Reinsurers handle risks that are substantial for insurance companies to handle alone.

Reinsurance treaties essentially transfer the insurer's liabilities for unearned premiums to the reinsurer. Similar to insurance contracts, reinsurance treaties have fixed time frames. It follows that accounting for portfolio changes is an important part of understanding risks faced by reinsurers

In reinsurance, a portfolio refers to existing insurance policies relinquished by the insurer, which may include unpaid claims, new policies and reinsurance renewals. As a result, the portfolio entry accounts for the reinsurer’s premium portfolio, loss portfolio and investment portfolio.

At the end of a reporting period, an insurer must list the value of unearned premiums linked with valid policies. At the same time, a reinsurer must also account for unearned premiums and evaluate its exposure to unearned premiums in an accounting period. 

A reinsurance company will deposit premiums from the ceding company in an unearned premium reserve account, which will be used to pay for any future claims. Over time, a portion of the premiums are transferred from the unearned premium reserve to the earned premium reserve. The premiums collected become the reinsurer's profit.

When a reinsurance treaty expires or is cancelled, the reinsurer has the option of transferring liabilities back to the ceding company by paying them for any unearned premiums.

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